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Friday, March 15, 2019

James K. Galbraith — Modern Monetary Realism

Kenneth Rogoff's criticism of Modern Monetary Theory assumes that MMT advocates don't care about budget deficits or the independence of the US Federal Reserve. But these assumptions are wide of the mark, and Rogoff himself sometimes undermines his own arguments.

Project SyndicateModern Monetary Realism
James K. Galbraith | Lloyd M. Bentsen Jr. Chair in Government/Business Relations and Professor of Government at the Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin

"Something extraordinary happened yesterday. Orthodox economists, frustrated by their inability to intimidate progressive elected officials, have launched a coordinated assault on MMT in hopes of making it politically dangerous for elected officials to embrace MMT. Yesterday brought three remarkable revelations about orthodox economists’ willingness to engage in naked intellectual dishonesty in their desperation to find something to discredit MMT."

And speaking of hypocrisy, the corporate media outlets are telling everyone “Don’t watch the video of the New Zealand shooting! Don’t share it! Don’t look for it! Don’t even think about it! If it pops up in your mind, ban it and report yourself to the police!”

Better to leave it unseen, like the body bags coming home from the Middle East that photographers may not take pictures of.

If you see the video, you will become “desensitized.” Of course, if that were true, then the US government would not have imprisoned Chelsea Manning for having leaked that video of the Baghdad airstrike of 12 July 2007.

Anyway the Washington Post says, “Don’t watch the video!” Instead, the Post gives a graphic account in order to thrill readers.

In it, we read, “The father of a Syrian family that had fled to New Zealand to escape the carnage in their country was killed. So was a 71-old refugee who had survived decades of war in his native Afghanistan.”

And who caused the “carnage” in Syria, plus the war in Afghanistan? THE WEST, especially the USA.

The next step in vilifying MMT is to call it a “Chinese communist plot.”

I mention this because Breitbart has been bombarded with reader comments that sympathize with Brenton Tarrant, the alleged shooter in Christchuch New Zealand.

Straight white males are obviously angry because of the war to exterminate them. (“Not all Muslims are evil, but all straight white males are evil.”) However these Breitbart comments are over the top, and Breitbart is engaging in mass deletions and damage control.

Now Breitbart spews this…

“Christchurch killer: nation with closest ‘values to my own is the people’s republic of China’.”

Whenever one of these events happen, everyone on all sides exploits it. Right wingers blame immigration. Leftist blame guns, Trump, “white nationalism” and “toxic masculinity” (even though today’s American women are more pro-war than are American men).

Sanjay Mittal:I was shocked when I learned that Rogoff the professor was the same person as Rogoff the Chess Grandmaster, who was good enough to impress Bobby Fischer when Rogoff was a junior. I mean there is more thought in one move on that level of chess than in all the papers and books he has written in economics. Capablanca famously learned how to play chess when he watched his father playing - when he was four years old. Rogoff the economist is over ten times that age - but he still doesn't understand how the horsies move there.

Where MMT goes off the railsComment on James Galbraith on ‘MMT — modern monetary realism’

“MMT is not, as its opponents seem to think, primarily a set of policy ideas. Rather, it is essentially a description of how a modern credit economy actually works – how money is created and destroyed, by governments and by banks, and how financial markets function. … Governments create money by spending and extinguish it via taxation.” (J. K. Galbraith)

This is not quite correct. It is the Central Bank that creates/destroys money. Roughly speaking, there are two ways of bringing money into the (closed) economy, (i) by financing the wage bill of the business sector, (ii) by deficit-spending of the household- or government sector.

The unhindered creation of fiat money for the payment of the wage bill is the correct way of bringing money into the economy. MMT’s government deficit-spending is the incorrect way. Why? Because of the macroeconomic Profit Law, it holds Public Deficit = Private Profit, in other words, bringing money at the demand side into the economy creates a free lunch for the Oligarchy.

In the most elementary case, transaction money is created by wage payments and destroyed by consumption spending.#1

“How come Rogoff manages to keep his job at Harvard given that he is quite obviously clueless?”

Rogoff keeps his job for the same reason that most economics professors keep their jobs.

He shills for the rich.

It’s the same in most academic fields. Microbiology professors are required to shill for Big Pharma. Chemistry professors are required to shill for Big Oil. Physics professors are required to shill for military contractors. History professors are required to shill for war. And so on.

I do. I blame downward mobility, plus skyrocketing debt and despair. And much of the despair is caused by our criminally insane immoral fiat money system, a looting machine for the super rich and powerful. Further, our horrible "education" system is in the business of hiding and obfuscating this entire process.

In Scandinavian societies they are very collective. This is partially because in the very cold winters unless they pooled resources they would have died out.

I don't believe that libertarian is a natural way for mankind, and can only occur in modern societies as an anomaly. In the Scandinavian societies natural selection would have killed them off. So much for Ayn Rand-ian, look after yourself, number one survival of the fittest. The weak get wiped out.

Used to be that way but not anymore. Sure there is universal medicare for all but it’s under attack, Every year large parts of public financed/owned is sold off to private owners. School is a voucher system which has loads of problems etc.

“Capitalism (aka democracy at the point of a gun) cannot allow any system that competes with it to exist.” ~ Noah Way

Very true, but this is also true of communism. Both extremes have problems, and in many ways they mirror each other. That’s why I advocate a compromise or balance between them. Such a balance can never be perfectly achieved, but I think it is a worthy star to guide us by. A balance between freedom and regulation; between oligarch power and state power. Not too much of one or the other.

At present, most of the world is rushing toward the extreme of neoliberalism, in which a handful of oligarchs own everything and everyone. As a result, we have downward mobility, exploding inequality, sexual frustration, sexual deviancy, and skyrocketing debt. These are driving straight white males insane, e.g. Christchurch New Zealand.

>>SPEAKING OF WHICH<< I have never seen such river of crocodile tears. Every day we are fed propaganda about ISIS, al Qaeda, jihadists, and so on. Every day the West makes war on Muslims in the Middle East. Libya, Syria, Yemen, the Gaza Death Camp, and so on. Every day we hear calls to bombard Iran. We hear that Venezuela crawls with Hezbollah. It never ends. But when two mosques get shot up, everyone weeps for their Dear Muslims.

The hypocrisy is boundless. Western governments and social media platforms (e.g. Facebook) are rushing to maintain this hypocrisy by feverishly purging videos of the New Zealand shooting. The more copies they purge, the more the masses want to see it as a gesture of defiance.

This purging has nothing to do with compassion, morality, or decency. It’s about power. Our masters will decide what we see, what we think, and what we talk about.

Just now I saw an article titled, “Technology is terrorism’s most effective ally. It delivers a global audience.”

Technology is also the oligarchs’ and the warmongers’ most effective ally. How many times each day are we told that MMT is “just wrong,” and that the USA must starve Venezuela’s lower classes to being them “Democracy”?

“The suspect’s live broadcast of the New Zealand killings reveals such acts are always as much about instilling fear as inflicting violence.”

Instilling fear is why politicians repeat the cliché that “All options are on the table.”

Sports stadiums are filled with military pageantry. Movies and TV shows glorify the CIA and FBI. Americans love war and violence, especially against Muslims and brown people.

And now the sanctimonious, self-righteous, infinitely hypocritical a**holes are crying about some Muslims being shot. How many? 50 now? Israel shoots that many every day. The USA uses drones to assassinate that many every day.

"Libertarian mantra: Completely abolish the initiation of violence. Voluntary cooperation is the norm in the absence of violence and in the presence of safety.

Progressive mantra: Voluntary collective action is IMPOSSIBLE and will never occur. Violence and the threat of violence from the government are the ONLY means to accomplish collective ends."

Finally I can understand something about libertarian thinking.

And why exactly do you claim that "voluntary cooperation is the norm in the absence of violence"? Is there any data or empirical evidence to support such claim? I believe that most antropologists and like would claim that the emergencie of violence is the norm in human societies, and not the opposite...

I believe that most antropologists and like would claim that the emergencie [sic] of violence is the norm in human societies, and not the opposite...

That's probably true. So our proposal is to focus upon a strict prohibition upon the initiation of violence and to assert that there is no basis for a necessity of state violence to force social cooperation. State violence to force social cooperation for large scale goals is the fundamental principle of "progressive" thought. It leads to war, Auschwitz and the Ukrainian terror famine. Nothing bad happens when their is a strictly enforced prohibition on violence. But a strict prohibition upon the initiation of violence will take hard work and a broad consensus.

The fact is that libertarianism is not and does not pretend to be a complete moral or aesthetic theory; it is only a political theory, that is, the important subset of moral theory that deals with the proper role of violence in social life.

"What a person does with his or her life is vital and important, but is simply irrelevant to libertarianism."

Political theory deals with what is proper or improper for government to do, and government is distinguished from every other group in society as being the institution of organized violence. Libertarianism holds that the only proper role of violence is to defend person and property against violence, that any use of violence that goes beyond such just defense is itself aggressive, unjust, and criminal. Libertarianism, therefore, is a theory which states that everyone should be free of violent invasion, should be free to do as he sees fit, except invade the person or property of another. What a person does with his or her life is vital and important, but is simply irrelevant to libertarianism.

Violence is the norm in human societies, a certain level of it anyway, but the way we were shaped evolutionarily, mostly in small tribes as hunter gatherers, there was a limit to how much violence could be perpetrated. Once we formed larger cities/nation states and we had the capacity for people who did nothing but protect/fight our whole calculus changed. It was really stupid to go kill 10-20 people cuz you were pissed when living in a band of 50-75, your own well being would be severely affected. In cities/nations killing 10-20 people does nothing to in terms of the groups ability to meet your basic needs. Now we can't rely on the self limiting factors of indiscriminate mass violence. We require a system that devotes a significant portion of our production to having people whose job it is to stop violent situations before they get out of hand. And that system must have an element of violence/punishment to be effective. Of course the greatest amount of killing is often done FOR the state in war although we know today its not just for the state but for private corps as well

"So our proposal is to focus upon a strict prohibition upon the initiation of violence and to assert that there is no basis for a necessity of state violence to force social cooperation"

And how would that be enforced? No one wants conflict neither violence. Nonetheless, both occur.

The absense of an authority with monopoly over violence is a temporary, unstable state. Some kind of authority with monopoly of violence eventually emerges. The thing is that it should be tamed under the control of the entire population, not under a few...

For the umpteenth time, Axec trotts out his moronic "law", i.e. that "Public Deficit = Private Profit" which apparently means that all deficit dollars end up in the pockets of the super rich.

Since when does 100% of an increase in demand for the products of a particular firm, or sector of the economy or for the products made by the economy as a whole end up in the pockets of the rich? For a start, any increase in demand can only be met by employees working longer hours or more jobs being created, ergo at least some of the money ends up in EMPLOYEES' pockets. It may be that a RELATIVELY LARAGE proportion ends up in the pockets of the rich, or if profits happen to be at about their normal level, relative to GDP, then a smaller proportion will end up in the pockets of the rich.

“For the umpteenth time, Axec trotts out his moronic ‘law’, i.e. that ‘Public Deficit = Private Profit’ which apparently means that all deficit dollars end up in the pockets of the super rich. Since when does 100% of an increase in demand for the products of a particular firm, or sector of the economy or for the products made by the economy as a whole end up in the pockets of the rich?”

You would not ask this question if you had done your macroeconomic homework.

This is how deficit spending works in the most elementary case. If the total wage income of the household sector is 100 in a given period and the household sector spends all on consumption, then the macroeconomic profit of the business sector is zero. If the total wage income of the household sector is 100 and the household sector spends all on consumption and the government sector applies deficit-spending/money-creation of 10, then there is a one-off price hike and the profit of the business sector is 10. Generalization: Public Deficit = Private Profit.#1

Easy to understand if one has more than two brain cells.

Egmont Kakarot-Handtke

#1 For the interrelationship of the macroeconomic Profit- and Employment Law see Wikimediahttps://commons.wikimedia.org/wiki/File:AXEC107.png

You answer a scientific question with your personal political credo: “Libertarian mantra: Completely abolish the initiation of violence.” Politics and science have to be strictly kept apart because the former always corrupts the latter.

So, an inquiry into the level of actual and threatened violence in a particular society is IRRELEVANT to an analysis of its economy? The level of violence and threatened violence in a society is irrelevant to an analysis and a comparison of the economies of Auschwitz, an Israeli kibbutz, New Zealand farm villages, Belgian Congo rubber plantations and Tijuana, Mexico? And just suggesting such an inquiry and analysis is "unscientific"?

Violence is the subject matter of Psychology/Sociology. Economists are supposed to know how the economy works.#1 So, you should be able to say which of the two sectoral balances equation is true/false?(i) (I−S)+(G−T)+(X−M)=0(ii) (I−S)+(G−T)+(X−M)−(Q−Yd)=0

You know nothing about economics. This is not exactly a qualification for Psychology/Sociology or anything else.

Egmont Kakarot-Handtke

#1 Economics is NOT a social sciencehttps://axecorg.blogspot.com/2016/08/economics-is-not-social-science.html

To this day, economists have produced NOT ONE textbook that satisfies scientific standardsComment on Peter Dorman on ‘Introductory Econ Textbooks: A Different Take on the Issues’

Peter Dorman summarizes: “Mankiw lays out three alternatives, teaching the mainstream and suppressing your own views, teaching minority or fringe views (i.e. your own), or not teaching introductory econ at all. … Whenever possible, I point out where other disciplines differ, and while I encourage students to judge for themselves, I don’t pressure them into adopting any one point of view. This is called critical thinking, and it barely exists in the world of economics textbooks, which proselytize shamelessly.”

No, this is NOT critical thinking. This is post-modern anything-goes, i.e. the pluralism of provably false theories. Economics is scientifically indefensible: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

And this is the crux of the matter: economists do not have the true theory. This is where we stand today: provably false• profit theory, for 200+ years,• microfoundations, for 140+ years,• macrofoundations, for 80+ years,• the application of elementary logic and mathematics since the founding fathers.

Economics is what Feynman called a cargo cult science and the textbooks reflect this. Economics is in need of a Paradigm Shift.#1 Since Samuelson started the textbook industry in 1948, economists have produced NOT ONE textbook that satisfies scientific standards.#2 Since generations, economics students swallow proto-scientific garbage without batting an eyelid. Not very smart, these folks.#3

Needless to emphasize that there have been multiple attempts to improve the situation. The latest initiative comes from MMT. MMT claims to be the new approach that beats failed Orthodoxy. This is accurate with regard to the long overdue shift from microfoundations to macrofoundations. Microfounded approaches are dead already since Walras/Jevons/Menger.#4 The problem is that economists messed up the shift from microfoundations to macrofoundations.

MMT is NO exception. And the proof is in the new MMT Textbook, more specifically in the premises of MMT.#5 The premises are laid out on pp. 13-16 and pp. 83-86.

“One of the most basic propositions in macroeconomics that MMT emphasizes is is the notion that at the aggregate level, total spending equals total income and total output.” (p. 14)

Unfortunately, the most basic proposition in macroeconomics is false since Keynes, and MMTers have not realized it to this day. Here is the short proof that economists in general and MMTers, in particular, get the elementary mathematics that underlies macroeconomics wrong.

(i) The elementary production-consumption economy is given by three macroeconomic axioms: (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

(ii) The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e. X=O.

(iii) The monetary profit of the business sector is defined as Q≡C−Yw,

(iv) The monetary saving of the household sector is defined as S≡Yw−C.

(v) Ergo Q+S=0 or Q=−S.

The balances add up to zero. The counterpart of household sector saving S is business sector loss −Q. The counterpart of household sector dissaving (-S) is business sector profit Q. Both Q and S are measurable with the precision of two decimal places.

For the elementary investment economy holds Q=I−S. For the elementary investment economy plus government holds Q=(I−S)+(G−T). And so on with growing complexity.

In sum: (1) profit is NOT income, i.e. a flow, but a balance, i.e. the difference of flows,#6 (2) distributed profit Yd is income and adds up with wage income Yw to total income, (3) total income is NEVER equal to total spending, (4) in the most elementary case, the difference between total spending of the household sector C and total wage income Yw is saving/dissaving, (5) profit/loss of the business sector is the mirror image of dissaving/saving of the household sector, i.e Q=−S, (6) saving and investment are causally INDEPENDENT and NEVER equal, (7) all I=S/IS-LM models are false since Keynes/Hicks, (8) Keynesianism, Post-Keynesianism, New Keynesianism and all variants are scientifically worthless, (9) the foundational MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false because it lacks the balance of the business sector Q, (10) because profit is false, the whole of MMT is false, (11) because the theory is false, MMT policy guidance has no sound scientific foundations.

What holds for the new MMT Textbook holds mutatis mutandis for ALL predecessors including Peter Dorman’s Microeconomics and Macroeconomics: A Fresh Start.

Guys have some negative capacity to hold conflicting ideas. There is no rule, law, model or math theories that humans won't bungle. Your accounting identities are only accounting identities, easily perverted as soon as society uses them as a yardstick. Progress and productivity are what must be delivered, don't worry too much about the latest and greatest theory execept in as much as it helps people get past their imaginary limitations. Beating on Roddis or Axec or Kelton is pointless.

"False necessity, or anti-necessitarian social theory, is a contemporary social theory that argues for the plasticity of social organizations and their potential to be shaped in new ways. The theory rejects the assumption that laws of change govern the history of human societies and limit human freedom.[1] It is a critique of "necessitarian" thought in conventional social theories (like liberalism or Marxism) which hold that parts of the social order are necessary or the result of the natural flow of history. The theory rejects the idea that human societies must be organized in a certain way (for example, liberal democracy) and that human activity will adhere to certain forms (for example if people were only motivated by rational self-interest). ". Helpful philosophy for artists to get past these trivial arguments.

The universe is infinite and decaying into chaos but our lifetime is limited. That cruel relentless reality means you never have enough time. You must spend your time efficiently or you are destroying the only non infinite resource, the most precious. Progress allows you more efficient use of your time.

Productivity means using fewer inputs to produce more output. Inputs can be labor or other resources like water or a gooses feathers (or clear sunny sky devoid of life giving CO2 if you are climate fascist)